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Everybody is Winging it!

Top 5 faults in forecasting

  • Tops Down Sales Forecasting. This is when, to achieve an artificially imposed revenue number on the business annual sales targets are introduced into the forecast, without any real substance behind how they will be achieved. A noose around the sales guy’s neck. To be an incentive targets must be realistic. It’s like offering £3,000,000 for the first person to high jump 3m, its 55cm higher than the current record, set in 1993 by a chemically enhanced Cuban, so not possible and not an incentive.
  • Magic Margins. Setting margin targets which can only be achieved by increasing prices to unsustainable levels. When setting selling prices in a forecast, ensure they represent a competitive selling price not a crack pipe to delude your audience. Again, Sales beware. You may have guessed that I have run sales in a number of organisations and have been on the receiving end of such fanciful targets.
  • Keep it real. Forecasts are a view of the future and as such inherently full of potential inaccuracies, you don’t know what you don’t know. Make sure your forecast is representative of historical performance and tune the outcomes to take account of the things you do know with a reasonable degree of certainty. If Amazon said they were going to increase warehouse staff during the festive period at no incremental cost as Jeremy Clarkson, David Tennant, Scarlett Johansson and the other talent contracted to Amazon Prime Video productions were going to pull free shifts picking and packing as part of their contracts. Amusing though that might be, its unlikely to true. Make sure you associate the fully loaded costs to everything you include in your forecast.
  • Deferred Revenue. Software licences, maintenance contracts and many other services come with an upfront payment for a time period, typically one year. Such revenue is meant to be recognised pro rata over the period it covers. Just remember you’ve had the cash and no more is coming so don’t be surprised if you spend it all up front and still have the liability of providing the service that there may be a hole in your cash flow.
  • Just how much is your stock worth? Over stating the value of your stock to shore up your balance sheet isn’t a new form of creative accountancy; Ted Baker seem to have been doing it for years to accumulate a total of £25,000,000 over valuation. That’s a lot of shirts and shoes. Remember that inventory has a shelf life after which it starts to become worth less than you paid for it. That’s what sales are for, to move slow moving stock, don’t just let it accumulate and report it at full value. It will come back to bite you, even the dimmest board will catch on sooner or later. If not them the auditors will. We’ve all done it every now and then, it only works if it’s a short-term fix/fudge.

Using a powerful strategic planning and forecasting tool will allow you to avoid some or all of these faults and many more beside. ProForecast let’s you build your strategic plan and take into account all of these and many more vital statistics before producing your forecast.

Start now with ProForecast with a 30-day free trial at https://proforecast.com/free-trial/.

Mark Harrison

Cheif Commercial Officer

Top 10 most used What If Scenarios

Using What-If scenario analysis to make smarter decisions

George W Bush won’t be remembered as one of the great US presidents, however he was unjustly ridiculed for this very pertinent bit of advice, “You don’t know what you don’t know”. Or as Harold MacMillan said when asked, what was most likely to blow a government off course he answered, “events my dear boy”.

In today’s world the only certainty is uncertainty, never, have so many of the fundamentals of business been up in the air and open to interpretation. So, here are our top 10 of the most used What If Scenarios.

  • What If demand increases 20%
  • What If export tariffs change?
  • What If the exchange rate changes?
  • What If my supplier costs increase 5%?
  • What If there is a shortage of Raw Materials?
  • What If sales decrease by 3%?
  • What If we increase headcount by 8%?
  • What If stock in transit days increase?
  • What If I introduce a new product?
  • What If I increase my debt levels?

What If, What If, What If.

Does your strategic planning and forecasting solution give you the agility to react to the unexpected?

What If you could see the impact of your decisions before you made them?

With ProForecast you can.

With our Micro and Global What If planning tools you can test unlimited scenarios and see their impact. Then only implement the changes to plans once they are ready and tested.

Are you equipped to react quickly to shifting markets and changing demands?

Start now with ProForecast with a 30-day free trial at https://proforecast.com/free-trial/.

ProForecast is the leading strategic planning and financial forecasting tool for business and accountancy practices, so don’t forget to book yourself in for a demo to ensure you get the best out of the system.

Mark Harrison

Chief Commercial Officer

ProForecast

Top 5 reasons why using Excel for your Forecast just isn’t Reliable, Efficient or Secure

Time needed to create a forecasting model

No matter how good you are at using Excel, it is going to take a lot of time and effort to create a model that can be used to produce a meaningful detailed forecast for your business with the outputs and analytics you need to make informed decisions about the future strategy of your business. If you are as busy as most finance professionals are, locking yourself away for a few days to create a model just isn’t an option.

Inherent risk in distributing your forecast

Once you have created your forecasting model in Excel and populated it as best you can, you now have to distribute it to the various stakeholders in your organisation for their input. Once they have done so and returned the model to you, you have to take the time to consolidate all of their updates back into the core model all the time hoping they haven’t changed any formulas, broken links to other tables or added and deleted rows or done anything else that will break your model.

Security

Forecasts contain a lot of sensitive information around salaries, staffing levels, product launch or discontinuation, marketing plans etc. Once an excel spreadsheet has been attached to an email its in a position to be distributed more widely and potentially to a competitor or the wrong staff. Once you attach a working model to an email you have lost control.

Extracting the data to produce management reports

Now you have a forecast, you have to produce easy to understand reports and graphs in a format that visualises the data that it’s easy to understand when forming the basis of a management or board report. How do you drill down to show a greater level of granularity to provide an analysis of how you arrived at a certain assumption and if a number of people have worked on a plan what were those assumptions can be time consuming and potentially impractical to derive.

Scenario Planning

Forecasts are just that, an educated guess at future performance, normally taking historical data and projecting it forward based on the commercial expectations of the business, “what have I got to do to make the number”, in a spreadsheet, applying global and micro what if scenario planning can be very complex and will probably break your model, every forecast at least needs a base case, worst case and stretch scenario to stress test it but to be really meaningful it needs to take into account, changes in anything and everything, from exchange rates to extended stock in transit days, to cost of capital to fund projects or factoring, the list goes on. To capture these in one spreadsheet to be tuned to the various micro scenarios that can affect your business is extremely difficult and the chances of inaccuracies skewing results are very high.

Top 5 Benefits of replacing my Excel forecasting Model with ProForecast Cloud forecasting

Industry Specific Models

ProForecast comes with inbuilt industry specific models to help you create a model tailored for you and your needs.

Easy and safe to share

Once you have created you model in ProForecast you can share it and assign edit rights to others. Centralised Data Entry on a cloud-based system mean that all updates are captured by the application centrally removing the requirement for manually consolidation of updates and changes. Using an application ensures a consistent workflow in forecast creation.

As only the users with edit rights can share the plan and an audit trail is kept, it makes the data used secure.

Instant Results

Once a plan has been completed or updates are made, one click is all you need to update all reports and charts.

Scenario Planning made easy

Any parameter in the forecast can be amended with step changes as part of and Micro What If scenario planning that you may want to model or the whole plan can be tuned to a Global What If all with a few clicks. One click more and a full set of reports to analyse and charts to visualise the data are instantly available.

Integrated to your Accounts

ProForecast allows you to import your accounts directly to the application. Being in the Cloud means you can securely work on your forecast on any device anywhere you aren’t constrained to a desktop in your office.

Still not decided? Signup for a 30 day free trial of ProForecast at https://proforecast.com/free-trial/ and don’t forget to book yourself in for a demo to ensure you get the best out of the system.

Mark Harrison

Chief Commercial Officer

ProForecast

11/09/2019

Forecasting for Hotels and Hospitality

The devil is in the detail

Forecasts and budgets are a normal part of managing any business and the Hospitality industry is no different.

The challenges the Hospitality industry faces are much like any other industry, identifying sources of business and the related dependencies. Once you have done this it’s important to assess the impact from both a macro and micro level such as unemployment levels, general health of the economy, inflation, employment laws, interest rates and special events taking place In their market (major sporting events, concerts, trade shows and exhibitions) and competitors entering the market.

At the forefront of the process is identifying any capital requirements of the establishment. It could include expenses that address guest safety issues, revenue optimisation opportunities such as a restaurant refurbishment, cost avoidance or investment in energy management planning as an example. Then you have to assess if any of these projects may disrupt the normal course of business, such as a guest room renovation in particular or anything that might constrict capacity. A critical component of this review is a calculation of a return on any investment and the source and cost of capital funding for such projects.

Once the capital plan and associated expenses have been established for a hotel, the revenue component of the hotel operational forecast can be determined. There are numerous factors and sources that come into consideration when determining the data inputs for volume projections, occupancy rates as well as the room rates and pricing of meals.

In the rooms division of a hotel, projections need to factor sources of business from group contracts, contracts with airline crews, online travel agency portal and offers on brand websites, each source of revenue will have to be weighted against the standard room rate after discounts and seller fees have been applied.

You then have to step change by dates the increased demand and increase in room rates that come with special event such as those listed above on the area in addition to previous year’s actuals to try to determine the supply and demand on any given day. Local market knowledge is important in this process, so the forecast needs to be broken down by hotel and potentially distributed to the local management for their input. Other factors that come into play regarding determining average rates are the length of stays and arrival patterns.

In the food and beverage area of the hotel, capture percentage rates come into play when determining how much business will be generated by hotel guests, catering for special events, versus business that comes in off the street to eat in the restaurant. Determining the revenue per guest is a derivative of menu pricing as well as meal period i.e. Breakfast, Lunch or Dinner.

Full-service hotel operators, those with restaurants, spas, retail, banqueting, catering and a large number of rooms need a more sophisticated tool to produce an effective budget and forecast. The operators of these facilities need the ability to modify labour expenses (the largest opex cost to any hotel operator) based on business volume, seasonality and productivity standards. They need the ability to adjust their variable operating expenses including labour based on volume of occupied rooms, arrivals and departures, customers in the restaurant, spa or golf facilities. They will need the software to drive a variety of expense drivers such as cost per occupied room, cost per customer and cost per available room as examples. Once the hotel determines the daily revenue and transactional activity (rooms, guests, etc), the expense component would fluctuate accordingly as business volumes change.

Labour projections are also critical to the profitability of the hotel. It is a delicate balance to try and contain labour costs without negatively impacting the guest experience. Productivity per head should be as an example, how much time it takes to clean a room in relation to the revenue and volume projections in order to determine how many individuals are needed in a particular position on any given day.

With ProForecast and our capacity yield model, we offer you the flexibility to plan your budgets and forecasts to the right level of granularity to ensure it is as close to the actual outcome for your business.

Doing less you might as well ask Siri or Alexa to come up with a plan.

Visit us at www.proforecast.com and book a demo to see the most powerful forecasting application on the market.

Mark Harrison

Chief Commercial Officer

09/10/2019

Forecasting for Retail in an Amazon World

The “Amazon effect” has already dramatically changed the landscape of retail but the disruption goes much deeper than just the convenience of 24/7 shopping and next day delivery. It has changed retail cycles as retailers are forced to change the timing of their typical end of season sales to align with the Amazon driven Black Friday and assorted Amazon Sale Days throughout the year.

As a result, forecasting for a retail business or one of the myriads of distributers in their supply chain is very different to what it was just a few years ago.

With e-commerce comes e-planning and if you are not already forecasting differently you will or should be.

Online shoppers don’t want the pre prescribed experience of the traditional department store, they expect an experience tailored to their likes and preferences. To exploit these differences, we need to plan and forecast more flexibly and take into account macro and micro changes in consumer behaviour.

Traditionally, forecasts were based on historical demand and performance and the assumption that largely history will repeat itself.

In principle these methods hold true but without the ability to build and test new scenarios into a forecast, these forecasts will struggle to keep up with a rapidly changing dynamic landscape.

In today’s landscape, changes in the marketplace are swift, sudden and don’t follow a historical trading trend or pattern. Just looking at historical trading will not give you the whole picture.

To have a credible forecast you need to make judgements based on multiple scenarios, such as changes in buying habits and peak sales times, introducing new products more frequently than has been done previously, flexing your work force around these new dynamics.

To predict demand people are turning to machine learning to try to understand the drivers for demand of what and when, Big Data gives us access to an almost infinite array of parameters to consider, however without analysis Big Data is just that, a lot of data without any credible output.

How to harness the power of the available data to produce an accurate and credible forecast for your business is one of the many challenges we’ve set ourselves at ProForecast. We work together with local Universities to harness the power of Machine Learning to improve the reliability of our output. In the meantime, we offer you the ability to customised and run multiple scenarios both micro and macro to come up with the best way of planning for demand and the associated costs moving forward.

Visit us at www.proforecast.com and book a demo to see the most powerful forecasting application on the market.

Mark Harrison

Chief Commercial Officer

04/10/2019

Why do Forecasts Fail?

Hubris and poor assumptions will do it every time.

Forecasts, in many cases are nothing more than an educated guess, someone’s gut feel. Sales projections and margins used to calculate outcomes are the starting point to make the model achieve the target goal, whether these are realistic or not is not the forecasters responsibility or goal.

I’ve run sales in major corporations and have frequently had sales and gross margin targets imposed upon me that bear no resemblance to the market we were operating in. The goal of such forecasts, that are doomed to failure, is usually to keep a hostile board at bay and hide the fact that things aren’t going as well as they should be or that the business isn’t being run as well as it could. You probably get to fire the sales guy twice before that argument doesn’t work anymore and questions are asked about how the business is run on a wider front.

To take them beyond this and make them more meaningful guides to drive your business its important to run multiple scenarios, in setting sales/revenue targets there should be a worst case, mean and stretch scenarios that can be used to see how far you can go with the business or what is the worst case you are going to have to survive.

If things look comfortable on your worst-case scenario then you probably have a mature business with predictable revenue from multiple long-established customers. Worst-case will show a small decline in revenue from your existing base plus very little growth from new ones. The mean forecast will be just steady as she goes projecting historic growth forward with potentially some tweaks for saturation of certain markets and growth in others. Stretch will be just that, if things go very well and the stars align for your business and your products then this is what it could be.

Start-ups tend to operate in permanent stretch as they have the unusual mix of no historic data, a combination of inexperience, optimism and hubris. I’ve never seen a start up that hit its forecast.

So, how to make your forecast more accurate and a real tool to manage the expectations for your business.

  1. Avoid inaccurate or false assumptions, easier said than done, but when preparing a forecast its easy to skim over this key part of the process.
  2. Focus on historic data and the forward extrapolation of that data.
  3. Be realistic and consider the effect, market changes or the wider economic impacts will have on your business, test these with thorough scenario planning.
  4. Don’t ignore fundamental changes to your market, there are many things out of your control, such as exchange rates as a very simplistic one or to be current perhaps you will have to pay duty and wait longer for your goods from a supplier in the near future and this needs to be factored in.
  5. Hubris, don’t get carried away because you had one good quarter its much better to over perform than over promise.

No forecast will ever be accurate, so the real test is the scenario planning, which should provide a wide range of realistic outcomes and understanding that as the forecasted period progresses how various events and circumstances will affect your business.

ProForecast allows the user to run multiple “what if” scenarios to allow them to stress test a forecast and produce a realistic set of outcomes for your business. This will assist you in solidifying your strategic planning for the future and allow you to react to events as the forecasting period unfurls.

If your like to learn more about how Proforecast can be a key tool in the development of your strategic plan then visit us at www.proforecast.com book a demo or give us a call.

Mark Harrison

Chief Commercial Officer – ProForecast

26/09/2019

Cash Flow Forecasting – Don’t take your hands off the wheel

I must admit, personally, the thought of autonomous cars driving themselves while we read books, watch Netfix or climb into the back seat to do what should be done at home or in a secluded place at night, fills me with horror. It might be because I’m not from Generation X who blindly believe in technology, but here’s why.

Evidentially, I’ve seen enough software hang up or misbehave over the years that I just couldn’t sit in a car with no one at the wheel and let some software package take my life and that of my fellow road users into its dispassionate hands and still sleep at night or more to the point in the car.

The trend to automation continues with Cash Flow forecasting. ProForecast, of course, has a cash flow forecasting function and will show you what your predicted sales volumes and margins do to your cashflow, this is essential for strategic planning.

There are so many variables in the real world of cash flow that its impossible to predict accurately in the real world for any meaningful length of time.

If you have a cash rich business, then you probably aren’t that worried about cash flow in the short term. If you are a small business with cash flow challenges, you should be managing this on a daily basis, there isn’t a piece of software anywhere that can help you here.

When cash is tight you have daily decisions to make based on when you get paid, who you pay and when. You might have an essential supplier that you just have to pay on time come what may or you will lose credit terms or priority on inventory. Who to pay and who not to pay is something you have to decide based on the size of your bank balance every single day.

If cash is an issue, you may defer rent payments or even VAT or PAYE as although HMRC and your landlord have the biggest sticks they are actually the easiest to deal with when you have a short-term cash flow issue. If you communicate with them, they will be helpful.

You really need to be on top of this minute by minute watching for cash coming in and then making a decision as where it goes out to based on who is most important. First should always be payroll but after that it’s a judgement call on your part. There is no software in the world that can replace a human and their ability to deal with creditors to help you through a tough period. Buyer beware if you have invested in one of the current crop of cash flow forecasting software that you plug into Xero and ride the sofa to continued solvency with automated alarms when an issue could potentially raise its head, prompting you to some pre-defined action. When it does so it’s almost certainly too late.

Forecasting is a strategic planning tool, that should be used to show how various scenarios will affect your business going forward. If you are planning on introducing a new product, raising debt, acquiring another company or need a valuation for a trade sale, if you want to manage your investors or produced informed board reports, forecasting is essential. Will forecasting ever be able to advise you on the gut feel of what and who to pay when, when things are tight, never.

Don’t drive your business into the back of a truck because you left the management of an essential function to a piece of off the shelf software. If you want to use forecasting as a powerful tool in your strategic planning cycle then talk to us at www.proforecast.com.

Mark Harrison

Chief Commercial Officer – ProForecast

24/09/2019

Welcome to the New ProForecast

In the state-of-the-art Sunderland Software Centre, you will find ProForecast. Led by Steven Katirai, the ideas behind the application, ProForecast have developed the most powerful Financial Forecasting and Business Strategy application on the market.

“We wanted to differentiate ourselves from the rest of the market” begins Katirai, “there are a lot of cash flow forecasting tools in the market targeted as small businesses who use Xero or Quickbooks and there are couple of players who have tried to religiously reproduce Sage WinForecast, a desktop application that hadn’t seen any new development for 22 years and has been off support for 5 years.

I felt that it was time that there was a forecasting and strategic planning tool that went beyond the capabilities of WinForecast and was targeted at the businesses that need such tools, Mid-Market and Enterprises. The result was ProForecast”

ProForecast as the name suggests is a professional cloud-based forecasting tool designed for mid-market companies and enterprises who have complex needs.

It includes well developed and comprehensive business templates that eliminate the need for formula building but gives users, the ability to account for unusual accounting scenarios, such as deferred revenues, R&D tax credits, foreign currency loans, mezzanine finance, multiple bank accounts, and many more options. These are coupled to a wide range of prebuilt revenue models, with specific functions for manufacturing, retail, wholesale, distribution, capacity constrained businesses, care homes, recruitment, licences, franchises, agency-based businesses, events and box office sales, the entertainment industry, and hospitality industry.

The unique inbuilt global and micro “What if” capabilities enables users to build forecasts and budgets that can be extensively stress tested and plans are automatically benchmarked against a database of 2.5m UK companies spread over 750 business categories.

This is all married to an impressive BI engine which provides users with the ability to dig deep into the data, to extract hidden insights and so make more informed business decisions.

Users can also build their own dashboards and reports in addition to the over 200 beautiful prebuilt graphs and reports.

The system features drill down capabilities to the underling data, multiple users can work on building budgets, forecasts and data can be imported from all accounting programmes, payroll packages and from internal excel models.

ProForecast is constantly adding new features to the package, many of which are driven by the users.

This is all packaged in an easy to use interface, extensive help facilities and an inexpensive monthly subscription.

If you’d like to learn about or try ProForecast go to our website, www.proforecast.com and book a demo with one of our support team and sign up for a 30 day free trial.